What is internal service billing?
In short: Internal billing for services ensures that different departments of a company are billed fairly when they support each other. Whether it’s IT support, cleaning or in-house training, all of this comes with costs that need to be recorded somewhere. To prevent all this from ending in chaos, there are several calculation methods.
What procedures are there?
Depending on how precise and complex you want it to be, there are different ways to carry out internal billing for the service:
The cultivation method: simple but imprecise
The cultivation method is the simplest method of internal billing for the service. Here internal services are billed only in one direction, without any re-billing. This means that interdependencies between departments are not taken into account.
Example: In a building cleaning service, the concierge service is responsible for cleaning office buildings. This department charges the administration only for cleaning services, but does not take into account the fact that cleaning also uses the technical maintenance area, for example for the maintenance of heating systems. This means that the maintenance department does not receive any reimbursement for the support they receive from cleaning. Therefore, the distribution of costs is not entirely accurate.
The ladder method: a more precise step
In the step-by-step process the departments are invoiced one after the other. Services provided by one department to several others are included in the calculation. However, subsequent departments cannot charge previous departments for services.
Example: Imagine that in an artisan company the programming department collaborates with the materials procurement department. Planning regularly orders materials for construction sites and material procurement delivers them to the construction site. The planning department is invoiced for the material order and then material procurement services are included in the calculation. However: If material procurement returns to planning and, for example, inventory needs to be ordered, this service is not recorded.
The iterative process: greater precision
The iterative process goes one step further: mutual cost allocations are taken into account by repeating the process in multiple runs until a stable cost distribution is achieved.
Example: A medium-sized artisan company manages several construction sites and regularly needs materials. The construction department orders material from material management and the storage department helps redistribute the material between construction sites. In an iterative process, it is now calculated step by step how much each department (e.g. material management and warehouse) has actually taken over from the other. This process repeats until the distribution of costs between departments results in a fair and stable solution.
The equation method: extremely accurate, but complex
The equation method is the most precise but also the most complicated method. Here systems of mathematical equations are used to calculate all internal services at once.
Example: In a facility management company several departments work together: the technology department takes care of the maintenance of the heating systems, the accounting department has to clean regularly and the administration has an increased workload due to maintenance and repair documentation. The equation method uses complex mathematical models to calculate each department’s contribution to the performance of the others. For example, it takes into account how much each department allocates for its services and how often the cleaning of a heating repairman is supported by the technology department and vice versa. Ultimately, each department receives its precisely calculated share of the costs.
Internal billing procedures for services: advantages and disadvantages
How does time tracking help with billing for internal services?
Billing for internal services is a complex topic where it is important to record the correct numbers and distribute services equally between departments. But how to make this system truly precise and efficient without continuous absences or delays?
The problem for many companies: without precise and continuous recording of times, it is difficult to guarantee correct billing of services. Especially in large companies or companies with many different departments that support each other, confusion quickly arises. Who worked exactly how many hours? Who provided which internal services? And, above all, how are these services distributed between the various departments?
Sources of errors in manual recording:
In many companies, attendance recording is still carried out manually or using obsolete systems. This often leads to errors: an employee forgets to record working hours correctly or adds them late. These inaccuracies have a direct impact on the billing of internal services. How do you want to charge a fair price for a service if the time spent by a department was not recorded correctly?
Complexity across multiple departments
The more departments are involved in a project or service, the more complicated service allocation becomes. Manual processes can quickly reach their limits, especially with methods such as the iterative or equation method, where mutual performance must be precisely recorded and taken into account. The same sources of error recur here too: estimates, inaccurate records and forgotten services.
Exact billing depends on the question: who did what, for whom and when? Without complete time recording, many services remain in the dark, especially if they are documented manually or incompletely.
The solution: digital time recording via app
With clockin it works like this:
The technology department starts its work via app, selects the appropriate project or internal service, e.g. For example. “Heating Management Maintenance” – and automatically clocking in documents who worked on what and for how long.
No recalculations, no requests: the service is registered and ready to be invoiced.
Clockin’ project time recording is key:
clockin not only shows you when the work was done, but also for what and for whom.
This is the basis for fair billing of services between departments.
Here’s how it works:
- Each work phase can be recorded separately with the clockin app, whether it is maintenance of the heating system or the supply of materials to the construction site. You can immediately see how many hours were worked for which department.
- By classifying them into sub-projects, individual activities can also be assigned to customer projects. This allows not only smooth internal billing of services, but also the creation of correct invoices for customers.
- clockin allows you to precisely assign recorded times to respective projects and departments. This means that even complex performance assignments (such as with the iterative or equation method) can be performed without problems because all the relevant data is already available. The project team doesn’t have to wonder how many hours have been “estimated” for a project: everything is recorded in a clear and understandable way.
- No manual effort, no additions. All times are recorded in real time, which minimizes sources of error and simplifies billing. Especially when recording project time, where every hour is booked for a specific project or order, recording helps to maintain an overview and ensure that no hours are lost.
- With clockin all departments have access to recorded hours and distribution to projects at any time. This builds trust and ensures fair distribution of costs. Even for internal service assignments between departments (e.g. procurement of materials for a construction site or technical maintenance services), recorded times can be simply and transparently included in the assignment. There is no more uncertainty about how much a department actually spent on a project or on another department.
Why clockin is especially useful in billing services:
Integrating clocking into your business not only makes internal billing for services faster and more efficient, but also significantly more accurate. By detailed time recording, especially project time tracking, you can ensure that each department only pays for what they actually did. Exactly how much time each department has invested in each project is documented, which forms the basis for fair billing of services. And all this without additional sources of error or complex recalculations. This not only saves you time, but also costs that would result from inaccurate calculations.
Precise recording of project times also makes the connection to internal billing processes more transparent and the billing of services provided more realistic. clockin allows you to digitally and seamlessly record all working hours, which are then integrated directly into the service billing, based on the specific project, without having to manually add or estimate an hour.